On February 26, 2010, the Department of Labor (DOL) announced a rule governing investment advice to participants of 401(k) plans and IRA owners. The rule would expand the availability of investment advice by providing an exemption to certain provisions found in the Employee Retirement Income Security Act of 1974 (ERISA) as well as the Internal Revenue Code (IRC). Without the exemption, much of the advice given by advisers to plan participants and IRA owners would violate prohibited transaction rules found in ERISA and the IRC.
The rule seeks to ensure advisers are providing objective investment advice by generally allowing advice to plan participants and IRA holders in two limited circumstances: 1) through the use of an independent computer model; and 2) through an adviser who is compensated with fees that do not vary based on the investments a participant selects. The rule also contains various disclosure requirements, as well as safeguards and conditions.
The DOL is accepting comments until May 5, 2010. For further information, please visit the DOLís News Release, Fact Sheet and Proposed Rule.